Penny stocks - what are they?

Ever hear of the term "Penny Stocks" and wonder what they were? You are not alone. I use to play the stock market back in the late 1990's. I have made $900 in one day and lost $900 in one day too. Many of those stocks were priced right around $10-15 a share. When they start to be priced below $2 a share is when they are in danger of becoming a penny stock. Penny stocks are stocks that are priced below a dollar. There are dangers when trading penny stocks. What are they?

The first danger is the stock can be removed from the stock market at any time by the SEC. Often this happens with stock valued at less than .50 cents but I have seen it done to stocks valued at .98 cents. There is no warning either. Just one day they are gone and you are left holding worthless stock. I have had that happen twice on me. Once was a stock that I held on to, thinking the company would rebound, but it never did. I bought the stock when it was about $6 a share and watched it dip to $2 a share then go up again to $9 a share. All that in a matter of a few weeks. I should have sold it but I thought it would go to at least $12 and planned on selling it then. To my horror, one day it dropped to just above $1 a share then the next week hovered around .88 cents. I couldn't afford to sell it then since I only held 100 shares so I waited and waited till it became worthless and pulled from the stock market.

The next danger is from the famous "pump and dump" scheme. Con artists will purchase huge lots of penny stocks then "leak" out the word that the stock is about to boom. During the "leak" or "insider info" period the stock does indeed go up. That is due to some people falling for the lie and buying stock. Once the stock is at the price the con artist wants it to be, they then dump their shares on the market and make a bundle of cash. The problem is that now the stock drops because of the huge sell off.

If you really want to make money on penny stocks, and indeed you can, you must research the company you are investing in - thoroughly. You need to know who holds the majority of the stock, if they are selling it and when did they sell it. Don't sign up for emails that promise to guide you to the best penny stocks to watch - do your own research and don't trust a rumor.

Investing for your future

So you are getting older and you have not even thought about retirement income. There are several ways you can plan for a steady income. You could save like mad and try to have enough tucked before you reach the age you can no longer work or you could make it easier on yourself. Here are a few tips on how to provide that retirement income you will need:

• Invest yearly into a personal IRA account 
• If your job offers a 401K plan and matches your contribution - take their money. Invest as much as you can.
• Look into the various types of life insurance plans that you can cash out at retirement age.

That last one, not many people know about. My husband has one and will be worth more than a cool million by the time he reaches 65. He started the plan about 25 years ago. The monthly life insurance rate was $104 a month and had a disability clause in it. Should he become disabled, the $104 payments would be paid by the insurance company. After 15 years of payments, he used the disability clause. It was the best investment he ever made. Should he die before he retires and cashes out the plan, I will get $100K as beneficiary.

The best stock investments

The best advice I have ever heard for buying stocks is "invest in companies that you buy from". If your favorite store is WalMart then buy stock in WalMart. If you are complaining about the high cost of gasoline then buy stock in an oil company. If you buy Disney DVD's then invest in their company.

I am personally more of a mutual fund investor and I have a very nice energy mutual fund that has a wide range of company stocks including EXXON. That little beauty has earned me close to a 50% profit since first I first purchased it 2 years ago.

For some great tips on stocks I recommend visiting Motley Fool at fool.com

Bad advice from Dave Ramsey

I occasionally watch both Dave Ramsey and Susie Orman on the various cable channels to see if they dish out any advice that I could out to use. Susie was the one that turned me on to ROTH IRA’s and although I don’t have one I might be looking into one in the near future. Dave on the other hand has dished out some weird if not down right bad advice to some people calling into his show.

Last night I watched the last half of his show when this woman called in. She had taken $70K out of her 401K and giving it to her boyfriend. That was bad new enough since the boyfriend was at one time promising to pay her back and backed out of that promise. She then found out form the IRS that she owed $50K on the $70K she took out. Now I know that the IRS penalties are bad but I don’t think they are that bad. Right there Dave should have told her to get a tax attorney but instead he told her to go ahead with the sale of her house (which she had planned to do to pay the IRS back) and lower the price of it since she now feared that she was almost to the point of going into foreclosure (which she also said the lender had not notified her yet of any foreclosure action or any threat of). My biggest gripe is that this woman needed help badly and he failed to send her to the right person that could help her – an attorney with tax and financial experience. I don’t think that a person should lose their home because of what she did. I know the IRS is very happy with monthly payments of what can be arraigned.

You blew it Dave. What you need is a good colon cleanse to get the bull s*** out of your system and quit giving people bad advice.

Split up your bank accounts

After the closing of IndyMac Bank you think that people would learn not to put all their eggs (money) in one basket. First find out if your financial institution is federally insured. The amount in each account is typically insured to $100K tops. If you have $150K, like one poor sap on the TV news said he did in IndyMac, he will more than likely not see that $50K again. If he had only took that extra $50K to another bank or credit union he would be OK.

You have got to learn and treat banks just like the stock market and diversify your accounts. The banks will tell you it is easier to do all of your banking with them but protect your money and have several banks.

Get out of debt - NOW

Watch the video, lots of sound advise. I only wish my in debt sister-in-law would listen to this type of advice. She is the type that keeps refinancing her house to pay her credit cards off but forgets to cut the cards up. She then runs the credit card balances straight up to the limit again and then can't pay them. She and her husband are slowly drowning in debt.